Last month, the Hong Kong Securities and Futures Commission (SFC) issued its annual report for 2018-2019. Enforcement-related highlights of the report include:

Record Requests: Making 9,074 requests for trading and account records from intermediaries as a result of SFO surveillance “of untoward price and turnover movements”;

Investigations and Prosecutions: Commencement of 238 investigations; execution of search warrants in 30 cases; and laying of 42 criminal charges against four individuals and one corporation, and securing convictions of four persons and one corporation;

Civil Proceedings: Causing 101 individuals and corporations to be subject to ongoing civil proceedings; and

Disciplinary Actions: Disciplining of seven firms and three individuals, and imposition of fines totaling HK$867.7 million “for failures as sponsors of initial public offerings” and $HK940 million in fines on licensees; reprimanding of three firms for deficient selling practices and imposition of fines totaling HK$24.6 million; and disciplining of three individuals and one corporation for mishandling client money (two of which were banned for life from reentering the industry).

Note: The SFC’s actions over the past year demonstrated its commitment to “a more proactive front-loaded approach to get ahead of threats, punish wrongdoers, and ensure markets and fair and clean,” in part by reportedly doubling the amount of fines it imposed since 2017-2018. Consistent with its emphasis on Initial Public Offering (IPO) sponsor misconduct as “a top enforcement priority,” the SFC imposed substantial fines on a number of leading financial firms, including:

Reprimanding and fining UBS AG and UBS Securities Hong Kong Limited a total of HK$375 million for failing to discharge their obligations as a joint sponsor, and partially suspending UBS Securities’ licence to advise on corporate finance for one year;

Reprimanding and fining Standard Chartered Securities (Hong Kong) Limited HK$59.7 million for failing to discharge its obligations as a joint sponsor of one company’s listing application, stating that it “failed to conduct reasonable due diligence of core aspects of [that company’s] business”;

Reprimanding and fining Morgan Stanley Asia Limited HK$224 million and Merrill Lynch Far East Limited HK$128 million “for failing to discharge their obligations as joint sponsors of [another company’s] listing,” stating that they “failed to follow the guidelines for due diligence interviews, allowed [the company] to control the due diligence process and failed to take appropriate steps to address red flags”; and

Reprimanding and fining Citigroup Global Markets Asia Limited HK$57 million “for failing to conduct adequate and reasonable due diligence on still another company’s] customers and properly supervise its listing application.”

As a point of contrast, it should be noted that the SFC reported reprimanding and fining only one brokerage firm for failing to comply with anti-money laundering and counter-terrorist financing (AML/CTF) regulatory requirements. In light of the increasing attention that regulators and law enforcement agencies in other regions have been giving to AML/CTF enforcement in the past 12—18 months, it would be surprising if the SFC did not expand its scrutiny of AML/CTF compliance in the coming year.

Because the report contains far more detail about the SFC’s enforcement activity, regulatory compliance teams at firms subject to SFC jurisdiction should read the report’s enforcement section in its entirety and include pertinent excerpts in internal briefings and training materials.

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Published by Jonathan J. Rusch

I'm a lawyer and consultant interested in corporate- and individual-compliance issues, and an inveterate part-time law professor; a former federal prosecutor, regulator, and anti-bribery and corruption compliance head at a global financial institution; and a (very minor) shareholder in Williams Grand Prix Engineering.
View all posts by Jonathan J. Rusch